The chief executive of SSE yesterday warned of the “very real” prospect of the lights going out across Britain as he moved to cut 2,000MW of thermal generation capacity from the network.
Ian Marchant said the Government needed to provide greater clarity on electricity market reforms and bring forward capacity payments for existing plant if the country was to avoid a full-blown energy crisis.
The Perth-headquartered utility yesterday said it had conducted a review of its thermal operations and there was “huge uncertainty” both over future revenue streams for existing generation facilities and the level of return on investment for new-build power plants.
As a result, the company said it would not invest in new-build gas-fired electricity projects until at least 2015, and was reducing its current thermal capacity which includes power generated from gas, oil and coal-fired power sources as well as biomass by almost a quarter from 8,680MW to around 6,680MW.
Mr Marchant fired a warning shot at the UK authorities, saying the impasse over electricity market reform was putting the security of the UK’s energy supply at risk.
“Ofgem recently expressed real concern about the tightening of the UK’s generation capacity margin that will follow expected plant closures in the next few years, predicting a one-in-12 chance of the lights going out.
“It is unlikely the majority of reductions in generation capacity and the delays to new investment we have announced will have been included in this analysis, which highlights that the situation is likely to be even more critical than even they have predicted,” he said.
“It appears the Government is significantly underestimating the scale of the capacity crunch facing the UK in the next three years, and there is a very real risk of the lights going out as a result.
“The Government can reduce this risk very easily, by taking swift action to provide much greater clarity on its electricity market reforms and bringing forward capacity payments for existing plants from 2018 to 2014.”
SSE’s decision will affect five power stations Ferrybridge in Yorkshire, Keadby in Lincolnshire, Uskmouth in Gwent, Slough in Berkshire and the gas-powered facility at Peterhead with around 150 jobs being lost in total.
However, the change will not lead to a reduction in headcount at Peterhead, nor will it effect plans for SSE and Shell’s joint venture carbon capture and storage facility at the north-east station, which remains in the running to win £1 billion of support from the UK Government.
The company made a £397.5 million profit in the six months to the end of September, up 38% on the same period in 2011.
Paul Smith, managing director for generation at SSE, said market conditions for its older generation plant had become increasingly difficult and yesterday’s “forced” changes would ensure they continued to operate profitably.
Mr Smith said SSE was committed to maintaining a diverse generation portfolio with renewables and combined cycle gas turbines in its sights but the environment for investment had to correct. He predicted that SSE’s drawback would be mirrored by the action of the other ‘big six’ UK utilities in the months to come.
“We are clear the right market signals and support structures need to be in place before we can make the necessary investment decisions on these projects,” Mr Smith said.
“Neither of these is currently in place, and the kind of decision SSE is taking, to close existing generation plant on the one hand and delay investing in new plant on the other, is likely to be reflected across the industry in the coming months.”
Energy Minister John Hayes said: “We’re alive to the challenge facing us. The Bill before Parliament will set the conditions for the investment needed to keep Britain’s lights on in the long term.
“The amount of spare power available today is currently comfortable. As old infrastructure closes over the coming years we expect this margin to reduce, but we will make sure it stays manageable.
“We are not complacent about this, which is why we have an insurance policy the capacity market. We’re considering how and when this can best be used to bring about any necessary increase in supply or reduction in demand.”
However, Scottish Energy Minister Fergus Ewing said: “It is concerning that Scottish & Southern Energy has downgraded its plans for coal, gas and biomass generation across the UK, including at Peterhead, because of lack of clarity over the future of the market.”
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l See also report on Page 33.